Private equity investors moving into dentistry

Dental Abuse Seen Driven by Private Equity Investments

Isaac Gagnon stepped off the school bus sobbing last October and opened his mouth to show his mother where it hurt. She saw steel crowns on two of the 4-year-old’s back teeth.

"The dentist man got me," Gagnon remembers her son saying.

Isaac’s dentist was dispatched to his school by ReachOut Healthcare America, a dental management services company that’s in the portfolio of Morgan Stanley Private Equity, operates in 22 states and has dealt with 1.5 million patients. Management companies are at the center of a U.S. Senate inquiry, and audits, investigations and civil actions in six states over allegations of unnecessary procedures, low-quality treatment and the unlicensed practice of dentistry.

ReachOut is one of at least 25 dental management-services companies bought or backed by private-equity firms in the last decade. Dentists contract with the companies for marketing, scheduling, staff recruitment, supplies and other services. The companies account for about 12,000, or 8 percent, of U.S. dentists, according to Thomas A. Climo, a Las Vegas dental consultant.

Some of them have been riding a boom in Medicaid outlays on dentistry, which rose 63 percent to $7.4 billion between 2007 and 2010, outstripping the 4.9 percent growth in other dental spending. ReachOut and several of its private equity-backed rivals seek patients like Isaac Gagnon, who are covered by Medicaid, the federal-state insurance program for the poor and disabled.

On May 2, All Smiles Dental Center Inc., a management company owned by Chicago-based Valor Equity Partners, filed for bankruptcy protection. Its hand was forced in part by a Texas Medicaid action cutting off payment to some of its clinics because of allegedly “excessive” and “inappropriate” orthodontic care, according to an All Smiles executive’s affidavit included in the filing. All Smiles was part of a state audit in which 90 percent of Medicaid claims for orthodontic braces were found to be invalid because they weren’t medically needed, according to Christine Ellis, one of the auditors.

The All Smiles collapse followed another bankruptcy filing in February by Nashville-based Church Street Health Management LLC, which cited the costs of defending itself against lawsuits and investigations. Church Street is owned by Arcapita Inc., Carlyle Group LP (CG) and other private equity firms and affiliated with the Small Smiles network of dental clinics.

Management companies have "moved from being vendors of services," such as patient billing, "into increasingly complex arrangements under which some -- not all -- have embedded themselves deeply into every aspect of the dental practice," said Ken Burgess, an attorney for the North Carolina dental board.

Comment:

By Don McCanne, MD

Although Isaac reported to his mother, "The dentist man got me," we should be concerned not only about the fate of Isaac and patients like him, but also about the fate of professionalism in dentistry and the fate of our tax dollars in this government-financed Medicaid program, now that private equity firms are moving "into increasingly complex arrangements under which some have embedded themselves deeply into every aspect of the dental practice."

This fairly long Bloomberg article (link above) provides many more details that should make us question the wisdom of passively allowing private equity firms to take control, when their mission is profit, and low-income children with dental problems are merely their means to profit.

Dentistry is not alone here. We are seeing a massive transfer of Medicaid patients, including dual-eligibles, from traditional fee-for-service physicians to managed care organizations. States are shifting from an emphasis on trying to obtain decent care for these low-income patients, to an emphasis on trying to control the Medicaid component of the state budgets.

The managed care organizations continue to promise higher quality at lower costs, though the historical record is certainly not particularly supportive of these alleged outcomes. Patient advocates have expressed concern about the disruption in care and questionable access to future care, especially for specialized services. State authorities seem to be ignoring access and quality issues and focusing on spending, as they move forward with a let's-try-this-and-we'll-see-if-it-works attitude, and if it doesn't, at least we've saved money.

A well designed single payer system would eliminate Medicaid - an underfunded program tainted with a welfare mentality - and would include everyone in a comprehensive program which would cover all appropriate dental services.

Under such a program Isaac would not have had to suffer torture and indignity "while several adults held him on the dental table," as he received an "excessive" number of x-rays and "unnecessary" root canals. He would have been treated like any other child would be in an uptown dental practice, even if in a downtown clinic.